ADB backs govt's basic income plan, but cautions against loan waivers

ADB Country Director Kenichi Yokoyama said there was a need to address agriculture sector distress but farm loan waiver is not an effective solution

Asian Development Bank (ADB) on Friday backed the government’s plan to implement a universal basic income (UBI) but said it needs to be assessed how such a scheme could be rolled out efficiently.

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Raising doubts over farm loan waivers, it said instead of such write-offs, schemes like Telengana’s Rythu Bandhu and Odisha’s KALIA should be analysed to give support to distressed farmers.

ADB Country Director Kenichi Yokoyama told reporters that the multilateral agency will scale up its India funding to $4.5 billion (about Rs 31,500 crore) in 2019.

He said India has a platform to provide direct benefit transfer through Aadhaar but an analysis has to be done on how to implement UBI in the most efficient way.

“UBI has become a hot topic of debate. ADB advocates direct money transfer to a targeted group of people," Yokoyama said.

He said if subsidies are rationalised, then UBI is a step in the right direction.

Asked if there was a stress on fiscal deficit, Yokoyama said ADB has no doubt about the government meeting the target.

"I think a clear framework is there and mandate given under the Fiscal Responsibility and Budget Management Act. We don't have any doubt over it," he said. The Centre has budgeted to contain fiscal deficit at 3.3 per cent of the gross domestic product (GDP) in the current fiscal year, lower than 3.5 per cent in 2017-18.

Pointing out that farm debt waivers are against economic principles and cannot effectively address the agrarian distress, YokoYama said most people are sceptical about it as an economic principle and it has moral hazards.

"There is a need to address agriculture sector distress... but economic principle wise, farm loan waiver is not an effective means to address farm distress," he said.

He said experts and Jaitley had expressed reservations over farm debt waiver and that it could be a political option, but is a short-term solution economically.

Rather schemes given by Telangana and Odisha need to be analysed for their effectiveness, he said.

Earlier this week, RBI Governor Shaktikanta Das said any generalised farm loan waiver adversely impacts the credit culture and the behaviour of borrowers, amid various states announcing waivers. He said loan waiver is related to the fiscal space that a particular state government has.